How Salary Tax Works in Pakistan (2026-27): Slabs, Withholding and Refunds

Updated 27 October 2026

If you are employed in Pakistan, your employer deducts income tax from your salary every month and deposits it with the Federal Board of Revenue (FBR). This guide explains how that monthly figure is worked out, what changed for tax year 2027 (1 July 2026 – 30 June 2027), and what you should do at year end.

1. Your employer estimates your annual tax

Income tax is charged on yearly income, so your employer first projects your taxable salary for the whole year: basic pay plus taxable allowances such as house rent, conveyance, utilities and bonuses. Exempt items – for example medical allowance up to 10% of basic pay where no free medical facility is provided – are left out.

2. The slabs are applied

The annual figure is run through the salaried tax slabs. For 2026-27, income up to Rs 600,000 is tax-free, the next Rs 600,000 is taxed at just 1%, and rates then rise through 11%, 20%, 25%, 29% and 32% to 35% above Rs 7 million. Only the part of income inside each band is taxed at that band's rate. You can see every slab and your own figures in our salary income tax calculator.

3. The tax is spread over the remaining months

The annual tax, minus anything already deducted, is divided by the number of months left in the tax year. That is why your deduction can change after an increment, a bonus or a job switch: the employer recalculates the projection and spreads the difference over the remaining months.

What changed in Budget 2026-27

• The 23% band (Rs 2.2–3.2 million) fell to 20%.
• The 30% band (Rs 3.2–4.1 million) fell to 25%.
• A 29% band now covers Rs 4.1–5.6 million and a new 32% band covers Rs 5.6–7 million; 35% starts above Rs 7 million.
• The 9% surcharge on salaried income above Rs 10 million was removed.

Someone earning Rs 300,000 a month (Rs 3.6 million a year) paid Rs 466,000 in 2025-26 and pays Rs 416,000 in 2026-27 – a saving of about Rs 4,170 a month.

Changing jobs mid-year

Give your new employer the salary certificate from your previous employer showing income and tax deducted. Otherwise each employer may assume you start from zero, which can lead to too little tax being deducted and a balance payable when you file.

Filing your return and claiming refunds

Even if tax is deducted at source, filing a return through FBR's IRIS portal is how you get onto the Active Taxpayer List, which lowers withholding taxes on banking, property and vehicle transactions. When filing you can also claim tax credits (approved donations, voluntary pension contributions) and adjust advance taxes paid on utility bills and phone bills. If total tax deducted exceeds your liability, the return will show a refundable amount.

This guide summarises the rules reported for Finance Act 2026. Check fbr.gov.pk or consult a tax practitioner for your specific situation.